Geraldine Andrews QC, sitting as a deputy High Court judge
Residential property – Trespass — Flying freehold — Defendant permanently expropriating claimant’s property — Claimant obtaining award of damages for continuing and continuous infringement of right of use and enjoyment of property – Court assessing damages under various heads — Whether claimant entitled to restitutionary damages or exemplary damages — Claim allowed
M had purchased a property from the defendant property investment company. The property had a flying freehold over adjacent premises that were also owned by the defendant. The space comprising the flying freehold was primarily a storeroom, which was accessible only from M’s property. When the property was transferred to M, the title registered in his name had failed to refer to the storeroom. The defendant subsequently transferred the adjacent property to a subsidiary company (B); the property, including title to the storeroom, was registered .in its name.
The adjacent property was converted into self-contained flats incorporating the storeroom. Following M’s bankruptcy, the property was transferred to the claimant, who sought a declaration that B should not be the registered proprietor of the storeroom and that he had been deprived by B of the use and enjoyment of his property. He also sought an order for rectification of the Land Register under section 65 of the Land Registration Act 2002, so as to show that the storeroom formed part of the title to his property, or aggravated or exemplary damages or both.
Residential property – Trespass — Flying freehold — Defendant permanently expropriating claimant’s property — Claimant obtaining award of damages for continuing and continuous infringement of right of use and enjoyment of property – Court assessing damages under various heads — Whether claimant entitled to restitutionary damages or exemplary damages — Claim allowedM had purchased a property from the defendant property investment company. The property had a flying freehold over adjacent premises that were also owned by the defendant. The space comprising the flying freehold was primarily a storeroom, which was accessible only from M’s property. When the property was transferred to M, the title registered in his name had failed to refer to the storeroom. The defendant subsequently transferred the adjacent property to a subsidiary company (B); the property, including title to the storeroom, was registered .in its name. The adjacent property was converted into self-contained flats incorporating the storeroom. Following M’s bankruptcy, the property was transferred to the claimant, who sought a declaration that B should not be the registered proprietor of the storeroom and that he had been deprived by B of the use and enjoyment of his property. He also sought an order for rectification of the Land Register under section 65 of the Land Registration Act 2002, so as to show that the storeroom formed part of the title to his property, or aggravated or exemplary damages or both.Following a trial on liability, the defendant was held liable to the claimant in damages for the continuing (and continuous) infringement of his rights to enjoy the use of his property. At a separate hearing, the court was required to assess those damages. The issues for the court were, inter alia, whether and to what extent the claimant was entitled to: (i) damages in lieu of recovery of the land; (ii) mesne profits; (iii) consequential losses; and (iv) exemplary damages. Held: The claim was allowed. (1) In respect of damages in lieu, as a matter of principle continuing trespass by the defendant’s subsidiary must have come to an end when the court ordered the value of the storeroom to be paid to the claimant. It was reasonable to infer that, had the subsidiary gone through the proper channels, it would have paid more for the expropriated land than a third party that was not in possession of the adjacent property. Once the value of the land had passed to the claimant, he could no longer claim to have a continuing beneficial interest in it. He would therefore have no ground for claiming an ongoing trespass or breach of trust. Once the payment of the value had been made, the registered title deeds and the plans would finally reflect the true legal and beneficial ownership. The parties had agreed the value of the expropriated land to be £55,000: Horsford v Bird [2006] UKPC 3; [2006] 1 EGLR 75; [2006] 15 EG 136 considered.(2) The basic measure of the claimant’s loss and damage in an action for mesne profits remained the value to him of the property as it would fairly be calculated and/or such sum as should be reasonably paid to him for its use. That meant that the hypothetical license fee in some cases might be an appropriate measure under either of the alternative bases. There might also be cases in which the actual rent received by the trespasser was the appropriate measure of damages on the traditional loss basis.In a case of permanent expropriation, it would be unrealistic to measure the claimant’s loss on the basis of a hypothetical licence fee; if the trespasser had negotiated with the owner for the use of the land instead of taking it without permission, there would have been no licence. Instead, the trespasser would have bought the land outright, and the owner would have received its capital value sooner. Therefore, in such a case mesne profits should be measured as a percentage of the capital value because the owner will have lost a sum equivalent to the net yield or rate of return from that capital sum during the period of trespass; any income earned on the capital sum would have been taxed in the hands of the claimant. That introduced a flexible basis for assessment because it required the court to consider the use the trespasser had made of the land. In the instant case, an award of mesne profits would be made, representing the actual loss to the claimant, on the basis of applying an annual percentage of 4.5% to the agreed capital value of the property, which would amount to £23,210.64: Ministry of Defence v Ashman [1993] 2 EGLR 102; [1993] 40 EG 144 and Ministry of Defence v Thompson [1993] 2 EGLR 107; [1993] 40 EG 148 followed; Swordheath Properties Ltd v Tabet [1979] 1 EGLR 58; (1978) 249 EG 439 and Stadium Capital Holdings (No 2) Ltd v St Marylebone Property Co plc [2010] EWCA iv 952; [2010] PLSCS 201 considered.(3) As regards consequential losses, the claimant was entitled to £85,269.75 in respect of the cost of restoring a fire escape on the first floor, and £225,073.50 for the loss of profits from the function room. (4) The award of damages for the trespass and breach of trust, including damages for consequential losses, was insufficient to punish B for its conduct and to act as a deterrent. It was therefore appropriate to award exemplary damages. The amount of such damages should not exceed a sum that would suffice, in addition to the compensation, to teach B the necessary lesson that conduct of this type would not be tolerated. Cases of the deliberate expropriation of property were among the most serious type of trespass. The appropriate sum for exemplary damages, where the misconduct was so serious that a strong deterrent message was justified, was £60,000. Although that figure was three times the actual profit made from the wrongdoing, on the evidence before the court, it was merely one week’s average contribution by B to its group’s income. Furthermore, it was not out of line with the level of fine that might be imposed in a criminal case for theft by a trustee of the beneficiary’s land: Rookes v Barnard (No 1) [1964] AC 1129 and Broome v Cassell & Co Ltd (No 1) [1972] AC 1027 followed.John Stenhouse (instructed by Silks Solicitors, of Oldbury) appeared for the claimant; David Mitchell (instructed by Bude Nathan Iwanier Solicitors) appeared for the defendant.Eileen O’Grady, barrister
